We’re five years into the “Era of Accountability” and what do we have to show for it? Are we any closer to demonstrating marketing performance to CEOs and CFOs so they know what they’re getting for their money? Are we marketers more comfortable in our own skins, confident of our ability to measure and improve the effectiveness of our marketing strategies and programs? Unfortunately, the answers to all of these questions are not what we’d expect given that marketing accountability has been at the top of the vast majority of marketers’ to-do lists for as long as it has.
According to a recent study from Marketing Management Analytics and Financial Executives International, barely 7% of financial execs feel satisfied with their company’s ability to measure ROI. According to two studies released at the recent Association of National Advertiser’s (ANA) Marketing Accountability Conference, the majority of financial executives just don’t believe the ROI numbers or forecasts coming from marketing:
oNine of 10 said they don’t use ROI metrics to set marketing budgets in the annual budgeting cycle
oSeven in 10 said their companies don’t use marketing inputs and forecasts in financial guidance to Wall Street or public disclosures
oSix in 10 believe their companies’ marketing departments have an inadequate understanding of financial controls
oA surprising four in 10 believe that marketing forecasts made inside their company can’t pass the muster of a standard corporate audit
Finance isn’t the only department skeptical of marketing’s accountability efforts. According to the 2008 Marketing ROI & Measurement Study from the Lenskold Group and MarketingProfs, we marketers don’t believe our numbers either! A scant 17% of marketers believe their company’s ability to measure the financial return generated from marketing investments is “a source of real leadership” and “as good as it needs to be.” More fuel to the fire, the ANA’s studies mentioned earlier found:
oOnly one in 10 marketing executives said they could forecast the effect of a 10% cut in spending
oFewer than two in 10 said senior management had confidence in their firm’s marketing forecasts
Here we are five years in and nary a quarter of marketers saying they use ROI or similar financial measures to assess marketing effectiveness. What is it taking so long?!
One gigantic drag on marketing accountability efforts has got to be the fact that, finance and marketing remain estranged-only 33% reported “full cooperation and an open dialogue” with finance. In most firms, marketing is developing metrics, investing in tracking systems, and ultimately delivering information to finance without ever once asking finance for input into the process or an endorsement of their accountability efforts. Should we really be all that surprised [or incensed] then that finance thinks the numbers are bubkus?
A recession is not a time to mess with finance. Marketers need to immediately cease and desist the business-as-usual approach of measuring marketing effectiveness in a vacuum. Here’s a short-list of ideas for engaging finance folks in and, at the same time, jump starting our own marketing accountability efforts.
#1. Offer a penny for their thoughts.
“How many CMOs are partnering with their CFOs to create comprehensive and regular reporting on customer profitability?” writes Larry Selden and Geoffrey Colvin in a recent Harvard Business Review piece. They admit, however, that try as they may, they can find few that calculate profitability for each customer based on total revenue and expenses, including capital costs. Talk about an opportunity! Can you imagine being able to demonstrate each quarter marketing’s contribution to improved and enhanced customer profitability? Now that’s a number finance could believe in.
Bear in mind there’s nothing particularly mysterious or proprietary about measuring customer profitability. Marketers could start by calculating, for example, the lifetime value of current customers. There are revenue measures such as current spending in the category and current share for your brand today as well. You probably have a good handle on the costs to reach and influence different customers with the sales force and/or media, in addition to how much it costs to deliver and serve them. Ask finance for its two cents on costs-remember they think we don’t understand financial controls so we need to demonstrate otherwise.